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Pharmaceutical Industry in RussiaOperation under the new conditions

Rating of prospects for market development and clarity of legislation

Russia is still attractive to investment by foreign companies thanks to high profit margins and the potential for market growth.

At a business dinner held in January 2010 EY employees discussed the situation in the industry with 25 senior executives of major foreign pharmaceutical companies operating in Russia. The event occurred just as industry reforms were beginning, and market leaders expressed concerns as to what measures the Government would take and how the market would operate under the new conditions.

Measures taken by the Russian Government in recent times with a view to developing pharmaceutical production within the country and strengthening the competitive position of domestic companies have provoked much debate and dispute.

Now that 2010 has passed, the participants in our survey indicate a definite imbalance between the prospects for the development of the Russian pharmaceutical market and the level of transparency of the existing legislative regulatory framework.

Generally speaking, Russian manufacturers rate the clarity of current legislation higher than foreign importers. They have a clearer understanding of the recently proposed changes in the regulation of the pharmaceutical industry.

In addition the results of the survey indicate that Russian manufacturers take a slightly more optimistic view of the situation than foreign importers. In 6% of cases Russian manufacturers show greater confidence in the prospects of the Russian pharmaceutical market, which is undoubtedly a consequence of the state's import substitution policy.

Nevertheless, a number of analysts believe that Russia is still attractive to investment by foreign companies thanks to high profit margins, the potential for market growth and prospects for market consolidation, despite the slower pace of development compared with other BRIC countries.

2010: the beginning of changes

2010 was a momentous year in the history of the industry, as it was the year in which most of the reforms undertaken by the state took effect. The reforms affected the entire sphere of circulation of medicinal drugs, including:

The procedure for the registration/re-registration of medicinal products

The rules for the regulation of prices for medicinal products included in the list of vital and essential medicinal products (formerly the list of vital and essential medicinal drugs)

The importation of medicinal products into the territory of the Russian Federation

Procedures for the conduct of pre-clinical, clinical, international multicentre clinical and post-registration clinical research

The manufacture and marking of medicinal drugs

Market participants are already noting the impact of the changes on the results of their activities, but the effect so far is minimal. The current difficulties are largely attributable to the rapid pace and deficiencies in the planning of the reforms, and have not yet caused changes in the market shares of the 15 key market participants.

However, general forecasts made by the respondents suggest that the geography of the market may change as a result of the nascent localization of the manufacturing of imported goods, the redistribution of the market shares of key players as a result of the reform of the compulsory medical insurance system and the growth in the market shares of Russian companies by virtue of the state support available to them. It is quite possible that major structural changes in the market will in fact occur in 2011.

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